A leading Newport hi-tech company has confirmed reports that it is feeling the icy blast of deteriorating trade and is likely to announce further job losses this year.

But Surface Technology Systems, makers of machines which etch silicon wafers for microchips, says it has put mechanisms in place to ensure recovery and a return to profitability.

This action includes a reduction in the company's workforce, currently totalling 292, by about 20 per cent during the remainder of 2002.

The objective of the action being taken is to return the business to profitability without weakening the company's prospects in the medium to long term.

In its interim results for the six months ended June 30, chairman Nigel Randall said: "For the foreseeable future, revenue growth is not expected until market conditions improve and, therefore, expenditure and financial control will be under detailed review so that savings are achieved.

"Against this background, the board has decided that no interim dividend will be declared.

"This has been a difficult period for the business overall. Nevertheless, a number of important business developments have taken place and others are in progress which will strengthen the business for the future."

Sales for the period at £17.1 million were 42 per cent lower than the equivalent period in 2001. This reduction is a measure of the rapid fall in demand for equipment in the photonics sector from production customers particularly in North America.

After overheads, the loss before tax in the period was £8.4 million, of which £3 million relates to trading, the balance being the exceptional, non-trading items referred to above. The trading loss of £3 million compares with a profit before tax of £3 million in the equivalent period in 2001.

Global competition has increased significantly as more capital equipment companies chase the same available business. In the first half of 2002, the average sales price per machine sold was some 25 per cent lower than in the first half of 2001.

In spite of difficult trading conditions, there have been notable business developments, including an agreement for a joint world-wide marketing agreement with Xactix, Inc, a business development which further enhances STS's position as a leading equipment supplier to the MEMS industry.

The company's order intake has now fallen below expectations due to customers continuing to delay their purchasing decisions and it expects to report a loss for 2002. Action is being taken to address the cost base of the business in the light of the financial results and the adverse market conditions.